Can a NY town approve a single combined sewer rate for two separate sewage-works corporations operating in different areas?

Subject

Each sewage-works corporation must seek a rate tied to its own operating cost; combined cross-corporation rates are not authorized

Plain-English summary

The Town of Clifton Park had two separate private sewage-works corporations operating within town boundaries: Crescent Waste Treatment Corporation (serving the Foxwood Apartments) and Crescent Estate Sewerage Disposal Corporation (serving about 204 acres). Both were organized under Article 10 of the Transportation Corporations Law. They jointly petitioned the town board to approve a combined sewer rate, pooling their rate bases, rates of return, revenue requirements, and user pools.

The town attorney asked whether the town could approve a combined rate. The AG said no.

The reasoning followed the geographic and per-system design of Article 10. The statute treats sewage-works corporations as limited entities whose authority is prescribed by Article 10 and by the scope of the franchise the local governing body grants. Each corporation is tied to a specific "sewer area" approved by the municipality. The certificate of incorporation must specify the geographic area, and the municipality must consent. A corporation may not extend or modify its territory without consent to amend its certificate.

Section 117 requires plans and specifications for each corporation's area to be reviewed and approved by the municipality (with a licensed professional engineer) and by the health department having jurisdiction.

Section 121 sets the rate framework. A sewage-works corporation must supply facilities to a municipal "area or district wherein such corporation operates, and the inhabitants therein . . . at fair, reasonable and adequate rates agreed to by the corporation and the local governing board." Section 119(4) similarly assigns costs to users of the particular system if the municipality takes over operation.

That language puts every component of rate-setting at the per-corporation, per-area level. Costs go to the users of that area. Rates reflect that area's operating expenses and revenue requirements. There is no statutory mechanism for combining the user pools of two corporations or for cross-subsidizing one corporation's costs against another corporation's users. The result: each corporation must file its own petition for its own rate based on its own books.

The footnote draws an important distinction in the regulatory architecture. Article 10 governs "sewer areas" served by private sewage-works corporations. "Sewer districts" are a different beast under § 115(4) and they have their rates set under the Sewer Rent Law, General Municipal Law § 450 et seq. So a municipal sewer district might have flexibility a private corporation does not, but that flexibility does not transfer to the private structure.

The bigger picture: Article 10 was the legislature's way of letting private corporations provide sewer service in areas not covered by municipal sewer districts created under County Law Article 5-A or Town Law Articles 12 / 12-A. The trade-off for that private flexibility is tight per-corporation, per-area accountability. That trade-off forecloses the combined-rate approach the two Crescent corporations wanted.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What's the difference between a sewage-works corporation and a sewer district?

A sewage-works corporation is a private corporation that operates sewer service under an Article 10 franchise from the municipality. A sewer district is a municipal entity, created under County Law Article 5-A or Town Law Articles 12 / 12-A, with rates set under the Sewer Rent Law. Different regulatory regimes apply.

Could the two corporations have merged to achieve the same effect?

Possibly, but they would have needed to formally combine, with the municipality's consent to a new (combined) certificate of incorporation defining the new sewer area as the union of the two prior areas. That's a structural change requiring the town's agreement under § 116(1) and § 117. After such a merger, the new combined corporation could set a single rate for the combined service area.

Why does the statute care so much about per-area rate setting?

Two reasons. First, fairness to ratepayers: residents of one sewer area should not pay for the operating cost of a system they don't use. Second, accountability: the municipality has to approve the rate, and approving a rate makes sense only if the municipality can evaluate it against the operating cost of the system whose users will pay.

Can a corporation expand its service area to grow its user base?

Only with municipal consent to amend the certificate of incorporation. § 122(1) and 1977 Op Atty Gen (Inf) 117. Expansion is possible but requires the same governmental approval as the initial franchise.

What if one corporation is financially distressed and the other is not?

The AG opinion is uncompromising on this: "regardless of the revenue needs or circumstances of either corporation." Cross-subsidy is not an option through rate-combining. The distressed corporation would need to seek a rate increase on its own users, find efficiencies, or work out a structural change with municipal consent.

Statutory framework

Transportation Corporations Law Article 10 (originally L 1960, ch 1067) governs private sewage-works corporations.

Section 115(1) defines "sewer area"; § 115(4) defines "sewer district" (the latter falls under the Sewer Rent Law).

Section 116(1) covers certificate-of-incorporation requirements; § 117 requires municipal consent to provide service in a specified area, plus health-department approval.

Section 118(1)(a) requires municipal review of plans and specifications by a licensed professional engineer.

Section 121 sets the rate framework: rates must be fair, reasonable, and adequate, and agreed between the corporation and the local governing board.

Section 119(4) addresses the situation when the municipality takes over operation.

Section 122(1) limits operations to the approved sewer area.

General Municipal Law § 450 et seq. (Sewer Rent Law) governs rates for municipal sewer districts (a separate regulatory track).

County Law Article 5-A and Town Law Articles 12 and 12-A provide the alternative municipal sewer-district frameworks.

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/I_95-49_pw.pdf

Original opinion text

OPINIONS OF THE ATTORNEY GENERAL

Opn. No. 95-49
COUNTY LAW ART 5-A; GENERAL MUNICIPAL LAW § 450, et seq.; TOWN LAW ART 12, 12-A; TRANSPORTATION CORPORATIONS LAW, ART 10, §§ 115(1) and (4), 116(1), 117, 118(1)(a), 119(4), 122(1); L 1960 CH 1067.

Each sewage-works corporation must petition for a sewer rate that is directly related to the cost of operating and maintaining its own sewer system for its own users in its approved area of operation. There is no authority for the municipal approval of a combined sewer rate or increase for two sewage-works corporations, regardless of the revenue needs or circumstances of either corporation.

October 6, 1995

Karen M. Gazda, Esq.
Town Attorney
Town of Clifton Park
One Town Hall Plaza
Clifton Park, New York 12065

Informal Opinion
No. 95-49

Dear Ms. Gazda:

You inquire whether a town board may approve a combined sewer-rate petition jointly submitted by two independent sewage-works corporations. You informed us that each corporation operates a distinctly separate sewer area within the town pursuant to Article 10 of the Transportation Corporations Law. Specifically, you ask whether each individual sewage-works corporation is required to submit a petition for a sewer rate relating to its service area (based upon that area's particular revenue requirements and operating expenditures), or whether two sewage-works corporations may seek a combined sewer rate (by joining their rate bases, rates of return, revenue requirements and user pools).

Based upon information you have provided to this office, we understand that the joint petitioners in this instance are the Crescent Waste Treatment Corporation (Crescent Waste) and the Crescent Estate Sewerage Disposal Corporation (Crescent Estate). Since its incorporation on July 11, 1969, Crescent Waste has operated the sewer area serving the Foxwood Apartments Development in the Town of Clifton Park. Crescent Estate, incorporated on November 23, 1965, operates a separate sewer area which serves approximately 204 acres of property in the Town. Both entities are sewage-works corporations organized pursuant to Article 10 of the Transportation Corporations Law; their rates must therefore be set in accordance with the provisions of that Law.

By enacting Article 10, the Legislature established in the Transportation Corporations Law an alternate means of providing sewer services to areas of the state not served by a municipal sewer district established pursuant to Article 5-A of the County Law or Article 12 or 12-A of the Town Law. See, Bill Jacket, Governor's Memorandum, L 1960, ch 1067. By nature, sewage-works corporations are designed to be limited entities whose authority is prescribed by the Transportation Corporations Law and by the scope of the franchise granted by the local governing body under that Law. See, 1977 Op Atty Gen (Inf) 117.

The powers and duties of sewage-works corporations are strictly limited to the specific geographic areas in which they have been authorized to operate. See, Transportation Corporations Law § 122(1). Geographical jurisdiction must be expressly stated in each corporation's certificate of incorporation, which may only be filed if a certificate of the municipality where service is to be provided is appended consenting to provision of services by the corporation in the area described in the certificate of incorporation. See, Transportation Corporations Law §§ 116(1), 117; see also, Bill Jacket, L 1960, ch 1067. Thus, a sewage-works corporation may conduct its operations only within a specific "sewer area" approved by the municipality. See, Transportation Corporations Law § 115(1). Unless the town board consents to amendment of the certificate of incorporation of a sewage-works corporation formed under Transportation Corporations Law Article 10, the corporation may not extend or modify the territory it serves outside the area specified in its certificate.[1] See, 1977 Op Atty Gen (Inf) 117.

Article 10 requires municipal review and approval of each individual sewage-works corporation's proposed plans and specifications for its area of operation. The municipality must retain a licensed professional engineer to review the adequacy of these plans. See, Transportation Corporations Law § 118(1)(a). In addition, to ensure that the system meets applicable health and safety requirements, Transportation Corporations Law § 117 requires that the plans for each corporation also be reviewed and approved by the department of health having jurisdiction over the system.

Transportation Corporations Law § 121 sets forth the duties of a sewage-works corporation and the mechanism by which sewer rates are to be set. Section 121 states, in pertinent part, that a sewage-works corporation must supply sewage facilities to a city, town, village or other municipal "area or district wherein such corporation operates, and the inhabitants therein . . . at fair, reasonable and adequate rates agreed to by the corporation and the local governing board." See, Transportation Corporations Law § 121. Emphasis added. It seems clear from this language that services are to be provided by a sewage-works corporation to a specific geographic area with the costs charged to the inhabitants of that area at fair, reasonable and adequate rates. See also, Transportation Corporations Law § 119(4) stating that in the event the municipality takes over the operation of the system, costs and rates are to be assessed against the users of that system.

We conclude that each sewage-works corporation may operate only in the geographic area in which the municipality has granted approval. Each corporation's operations are to be financed through the imposition of fair, reasonable and adequate rates upon the inhabitants of the particular area served by the corporation. It follows, in answer to your question, that each sewage-works corporation must petition for a sewer rate that is directly related to the cost of operating and maintaining its own sewer system for its own users in its approved area of operation. There is no authority for the municipal approval of a combined sewer rate or increase for two sewage-works corporations, regardless of the revenue needs or circumstances of either corporation.

The Attorney General renders formal opinions only to officers and departments of State government. This perforce is an informal and unofficial expression of the views of this office.

Sincerely,

JOSEPH CONWAY
Assistant Attorney General

[1] In addition, we note that Transportation Corporations Law Article 10 clearly differentiates between a "sewer area," see, Transportation Corporations Law § 115(1), and a "sewer district," see, Transportation Corporations Law § 115(4). Sewer districts have their rates set under the Sewer Rent Law, General Municipal Law § 450 et seq.